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Consumer Power to Challenge Corporate Contracts Seems to Be Ebbing

Latest evidence: High court ruling on arbitration and class action

Like many people, James Pendergast usually didn’t pay much attention to his cellphone bill. But over the years, he noticed his carrier, Sprint, was charging “roaming” fees for calls he made when he was well within his Miami coverage area. Pendergast maintains that the charges, totaling about $20, were illegitimate.

His experiences are probably not unique. Pendergast’s lawyer says several million customers could be in the same boat. While it hardly seems worth the fuss for any one of those cellphone users to wage legal warfare over such a relatively small sum, Pendergast and his lawyer went to court, hoping to bring a class action lawsuit against the wireless company—and recoup millions for the customers they think have been overcharged.

That’s not as easy as it sounds. Buried deep within the terms and conditions of the Sprint contract is a clause that bans class action suits, instead requiring such customer disputes to be handled individually. Another section of the contract says all legal complaints must go to arbitration, an alternative method of resolving disputes, rather than to a courtroom.

Although they usually go unnoticed, such clauses have become routine, tucked into the fine print of all sorts of consumer contracts, from credit cards to cruise vacation tickets. According to a 2007 academic study, more than three-quarters of consumer agreements included mandatory arbitration provisions.

These clauses have a far-reaching impact on consumers. As AARP wrote in a friend of the court brief filed on behalf of Pendergast and the other Sprint customers, many corporations “have gone rogue,” using arbitration clauses “primarily to shield themselves from liability,” not as a way to select another forum for the disputes. Similarly, the class-action bans are “designed to cut off the only economical method available to most consumers,” AARP argued.

These provisions are used in contracts by a wide array of businesses—including cable providers, electronics manufacturers, nursing homes, homebuilders and others. “By including such clauses in the fine print of contracts, corporations ensure they fly below the radar of most consumers whose focus is getting the product or the service they want at the price they are willing to pay with the least amount of difficulty,” AARP’s brief said. “Such corporations know that few people will read or understand their import, and will usually have no opportunity or option to negotiate or reject such clauses.”

A disputed area of law

This tangle of mandatory arbitration clauses and bans on class action is now one of the most hotly contested areas of contract law. Advocates for consumers, employees and investors worry that several current cases show the courts moving to make it more difficult for individuals to use the legal system—and the potential collective power of class actions—to fight back against companies whom they believe have done them wrong.

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